The auction on Friday of government paper maturing in 2020 devolved partially — meaning, the primary dealers which underwrite the operation (buy from the government and resell) were left with unsold bonds.
The notified amount for the auction was Rs 15,000 crore, of which there was partial devolvement of Rs 961.50 crore in the 8.27 per cent 2020 paper. The cutoff yield in the auction for this bond was 8.5517 per cent.
“The auction devolved partially maybe because traders were bidding at a higher yield; the Reserve Bank is not comfortable with short-term bonds at high yields,” said Dwijendra Srivastava, chief investment officer (debt) at Sundaram Mutual Fund.
“Bond yields might start falling, as the partial devolvement is a signal that RBI does not want yields to be so high,” said a senior treasury official with a private bank.
This is the second time in the current financial year (starting April 1) that a bond auction devolved partially. It happened in April, too.
The yield on the 10-year benchmark bond ended at 8.75 per cent on Friday, compared with 8.73 per cent on Thursday.
Separately, RBI, in consultation with state governments, announced on Friday that the approximate total of market borrowings by the latter and Puducherry, for the July to September quarter, would be Rs 50,000-55,000 crore. It said the amount would be raised through auction on the second and fourth Tuesdays of a month.
State development loans had seen good demand from traders in the recent past because corporate bond issues had dried. “There will be good demand for these state development loans, too,” said Srivastava.
Corporate bond issuance had hit a five-year low in May due to anomalies in the new Companies Act, later corrected.
The Street is soon awaiting the issue of a new 10-year bond. According to traders, the bond might be issued anytime next month, due to which the yield on the present 10-year bond will fall. Typically, the coupon rate of a new bond comes at about 25-20 basis points below the yield of the current one.